MNI ANALYSIS: Greenback Has Further Upside Vs Singapore Dollar

--SGD Weakness Vs USD Should Not Prevent Regional Outperformance

By Stuart Allsopp

     SINGAPORE (MNI) - The U.S. dollar has broken cleanly above its 200DMA

versus the Singapore dollar as well as breaching downtrend resistance from the

January high, suggesting further upside ahead. That said, the SGD should

continue outperforming the rest of Asia as the Monetary Authority of Singapore

maintains its loose peg with the greenback.

     Weakness in the SGD has come despite MAS's decision to shift to an

appreciatory stance at its April 13 monetary policy meeting, as broad-based

dollar strength has dominated the impact of the SGD`s appreciation against its

trading basket.

--SGD TRACKING DOLLAR IN LOCKSTEP

     The 52-week rolling correlation between USDSGD and the US dollar index is

up at 0.96, with the SGD effectively just tracking the greenback's moves against

the majors. As the US dollar continues to rally amid increasing real interest

rate differentials with its peers, USDSGD seems highly likely to take another

leg up.

--REGIONAL OUTPERFORMANCE TO CONTINUE

     However, the Singapore dollar should also outperform its Asian peers given

the currency`s close links to the greenback. The SGD is close to new highs

relative to the Deutsche Bank Emerging Asia FX index -- a more equally weighted

regional FX basket compared with the ADXY. The longer-term trend should

continue, as MAS maintains its policy of appreciation against its basket. MAS

will not meet again until September.

--CNH WEAKNESS POSES MAIN RISK

     The main risk facing the SGD comes from a sharp depreciation or devaluation

of the Chinese yuan. While the composition of the SGD basket is not publicly

known, the yuan likely comprises a high weighting. Any large-scale CNY weakness

would thus deliver a direct hit to the SGD against the USD.

     That said, the SGD is far from the only currency in the region that is

closely linked to the CNY, and there would likely be broad-based Asian FX

weakness should the yuan be devalued. The SGD should therefore still outperform

the region.

--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$A$$$,M$U$$$,MN$FX$]